Research has suggested that firms may benefit from price uncertainty - about input commodities - because it creates an "option value". We use a stylized mathematical model to explore and generalize this claim and to specify its implications for firms' investment decisions under various setups....

We highlight the impact of capital quality, i.e., the depreciation rate of capital assets, on firms' investment behavior, endogenous output price dynamics, and industry equilibrium outcomes. To rigorously examine this question, a continuous-time model of dynamic capacity investment under...